- Fitch Solutions Macro Research predicts Japan’s transition from FiT based solar power procurement mechanism to competitive based auction system to slow down the solar power sector over the next decade
- First two auctions did not give desired results as the tariffs quoted were quite high, but one can expect better outcome during the third auction
- Between 2017 end to 2020, with project backlog from FiT mechanism coming online, 17 GW of new PV capacity might be deployed in the country
- Another 14 GW can be expected between 2020 end to 2027, with auctions awarding new capacities
Japan’s move from feed-in-tariffs (FiT) to competitive auctions for procurement of solar power projects is likely to slow down the country’s solar power sector in the next decade, according to Fitch Solutions Macro Research, a unit of financial information services company, Fitch Group.
The country grew from 13.6 GW of solar power capacity at the end of 2013 to 48.6 GW by the end of 2017. A commentary from Fitch Solutions Macro Research now expects another 17 GW to be added in Japan till 2020. This will be mainly due to the project backlog generated by the FiT mechanism that has a line up till 2020, when the projects are supposed to come online.
Going forward, between 2020 end and 2027, another 14 GW can be expected, Fitch says.
Since 2017, Japan is transitioning towards competitive auctions for solar projects of 2 MW or more with the aim to bring down prices for solar power, diversify its power mix that doesn’t want to depend on nuclear power, and also do away with natural gas and coal imports.
In November 2017, the country concluded its first solar auction with the lowest accepted bid of JPY 17,200 ($153.20) per MWh, which was way above what solar auctions in other countries have led to (see High Lowest Tariff In Japan’s First PV Auction). The second auction received a lowest bid of JPY 16.47 ($0.15) per kWh as against the benchmark of JPY15.5 ($0.14) per kWh.
The commentary lists significant security deposit requirements, limitations to grid capacity availability and difficulties in acquiring land as some of the challenges for developers. It does hope for lower prices in the third auction scheduled for H2/2018.
The government has also announced it will cut back FIT subsidies by half for smaller-scale PV projects for households and companies by mid-2020s. For households it means a reduction from the current JPY 26 ($0.23) per kWh to JPY 11 ($0.097) per kWh between 2025 to 2027. As for companies, by 2022 to 2024 it will come down from JPY 18 ($0.16) per kWh to JPY 8.5 ($0.075) per kWh. These measures, says Fitch, set the course for a slowdown in the sector.
“While these declines will weigh on long-term solar capacity growth at the distributed level, we do highlight that companies and households could capitalise on the higher FiTs available currently. This could lead to a short-term boom at the distributed solar capacity level, akin to what has been the case for utility-scale solar projects since 2013,” reads Fitch Solutions Macro Research report.
Japan installed 7.2 GW in 2017, according to the Global Market Outlook from SolarPower Europe, which expects the Asian country to add 7 GW this year in its medium scenario and add 29 GW from 2018 to 2022, which is much more ambitious than Fitch’s forecast.